The following data are accumulated by Reynolds Company in evaluating the purchas

Question

The following data are accumulated by Reynolds Company in evaluating the purchase of $129,200 of equipment, having a four-year useful life:

Net Income Net Cash Flow Year 1 Year 2 Year 3 Year 4 $38,000 23,000 11,000 (1,000) $64,000 49,000 37,000 25,000 Present Value of $1 at Compound Interest 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 12% 15% 0.870 0.890 0.826 0.7970.756 0.658 0.792 0.683 0.636 0.572 0.747 0.621 0.567 0.497 0.705 0.564 0507 0.432 0.376 0.327 0.284 0.247 Year 6% 10% 0.943 0.909 0.893 2 3 4 0.840 0.751 0.712 7 0.665 0.513 0.452 0.627 0.467 0.404 0.592 0.424 0.361 0.558 0.386 0.322 8 10

Explanation / Answer

Te Management would not proceed with the investment since the NPV is negative at 20%

Year net Cash Flow PV factor @ 20% PV of Cash flow 1 64000 0.833 53312 2 49000 0.694 34006 3 37000 0.579 21423 4 25000 0.482 12050 Present Value of Net Cash Flow 120791 Amount Invested 129200 NPV -8409

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